Budget contextEvery government, in presenting its budget, desires to be able to do more and spend more. Budget debates traditionally provide the occasion for grand announcements of projects and programmes to address every possible need, satisfy every important segment of the population.
For many people, that has come to be the standard by which a government is judged and a budget is assessed. A “good” budget is one that is loaded with goodies and a “good government” is one that presents “good budgets”.
The Leader of the Opposition spoke passionately about the needs of the poor and vulnerable and of the difficulties faced even by those who are not entirely poor but still vulnerable. She is absolutely right. I say, with absolute respect, and with no offence whatsoever intended, that she has no monopoly on compassion. We know that many people are having it hard and there are needs to be met.
That is what budgets, year after year, have tried to do – spending more, trying to do more. Our noble intentions were hardly ever deterred by the fact that our revenues were not sufficient to cover our spending. We simply borrowed the difference and kept on borrowing the difference.
For the last 14 consecutive years, we have been spending more than our revenues can cover. Up until 1995/96, our revenues and grants were sufficient to cover our recurrent expenses including interest payments. We did have to borrow to meet our capital expenditure and the principal repayment on our debt but we didn’t have to borrow to pay our bills.
I have noted that that was the year we said goodbye to the IMF. Every year since then, we have piled up deficit on top of deficit with an accumulated shortfall of almost $480 billion. Our recurrent expenditure has grown at a rate three times as fast as our revenues (76% vs 24%). Yet, our needs, ostensibly the object of all these “good budgets” loaded with goodies have still not been adequately met. We still have bad roads that need to be fixed, water supply systems that need to be upgraded, new schools that need to be built, poor people crying out for assistance.
We have lived a fiscal lifestyle in which we put on weight but we don’t grow. We accumulate fat but we build no muscles. And as we put on more weight, the muscles that must bear that weight become weaker, the pressure on our heart becomes greater and we have difficulty in moving around.
In human anatomy, obesity is not a sign of good health; it is a silent killer. In a country’s fiscal anatomy, obesity is as lethal a killer.
It is in that context that this budget has been framed. It is not the traditional budget promising to do more, spend more, leaving the revenues sputtering behind. This year, for the first time ever, the budget is substantially less than last year’s and we have started to shrink the gap between what we earn and what we spend.
The “spend more” option
The Leader of the Opposition says that is exactly the opposite of what we should be doing. She says that “more developed countries and progressive governments” have been spending more in order to boost aggregate demand and that is what we should be doing. The important difference is that those countries had built up surpluses that they were able to use to finance the big spending to boost aggregate demand.
I note with some interest that that was not the position taken by the Opposition Spokesman on Finance. He pointed to the impact that the budget cuts would have but he didn’t suggest that what we should do is spend more.
We might have been tempted to do that as we have done in the past, so long as we could keep borrowing to pay for what our revenues could not cover. When we got clobbered by the global recession, that game was over. The fallout in bauxite, remittances, exports, revenues, the financial markets changed that ballgame. We were facing a crisis of monumental proportions.
The Minister of Finance has recounted the strategies we used to head off that crisis – the support we were able to mobilize from the multilaterals, the painful tax increases we had to impose, the fiscal compression we had to apply, the necessary re-engagement with the IMF and the strictures that come with that.
We weren’t able to mount the massive stimulus packages that some countries did. We did as much as we could and it helped as it could. What we couldn’t do was to try to spend our way out of the crisis because we would have had to borrow every single dollar that we spent, digging ourselves into an even deeper hole.
As the data shows, the economy registered a 2.7% decline last year. Unemployment rose from 10.6% to 11.4%. That is a matter of real concern to us. The statistics are bland and impersonal. The impact on the people, the effect on people’s lives is cold and harsh – people who have lost their jobs, the small traders who spend the day in the sun without making a sale, the struggling families that have to juggle between paying the rent and buying food. No one needs to dramatize for us the hardship that people are going through.
I know that this is grist for any Opposition mill. I neither begrudge them nor seek to deny them their moment in the shade.
I also know it is no comfort to those who are suffering but the performance of the economy last year must be put in perspective. Is it not remarkable that in her two-hour presentation the Leader of the Opposition did not make even one mention of the global economic crisis and its impact on Jamaica? We are an island but in this economic turmoil we are not an island unto ourselves.
Let me use one illustration. We don’t consume one ounce of the bauxite or alumina we produce; every grain of it is exported. It accounts for more than 50% of our total export earnings. When the global market for bauxite and alumina collapsed, three of our four alumina plants were shut down. One third of our export earnings was wiped out last year, not to mention the substantial loss in revenues. Of the 2.7% that the economy declined last year, bauxite and alumina accounted for 1.9% of it!
How we stack up with the rest of the world
Yes, our economy fell last year by 2.7% but, despite the massive stimulus packages some were able to mount, the economies of most countries of the world, also fell, many of them worse than ours did:
Seen in this context, our 2.7% decline last year is nowhere as bad as it could have been and, for that, we must acknowledge the significant contribution made by the agriculture and tourism sectors. Agriculture grew by 12.1%, an outstanding achievement in a time of weak purchasing power. In tourism, Jamaica led the entire Caribbean with 3.6% growth in stopover arrivals despite the global downturn. I commend the work of the Minister of Agriculture and the Minister of Tourism and the teams that they lead.
The Opposition has attacked the budget as not being credible and bases its assertion on the fact that our targets and projections had to be revised more than once or were not met. If that charge is to be upheld, it could not be confined to Jamaica; it would have to be directed at many of the leading economies of the world and institutions such as the World Bank and IMF. They, too, would have to be declared as not credible.
The World Bank, IMF and the Federal Reserve were all forced to revise downwards their GDP projections for last year – not just once but, in the case of the IMF, three times and two of the three still got it wrong.>/li>We did not meet our revenue target last year. It fell short by 10% but we did increase revenue collections by 8% due, in part, to the tax increases we had to impose. The UK, on the other hand, saw a fall in revenue collections of 8% and the US 14.6% – as a percentage of GDP, the lowest in 50 years!Our fiscal deficit ended up at 10.9% due to the fallout in the economy but, in part, to payouts related to the debt exchange programme. But the deficit in the US was 12.9% and in the UK 11.8%.The number of unemployed in Jamaica rose last year by 22%. It rose by 35% in UK and 60% in the US.The Opposition highlights the fact that the public debt has grown by 55% in the last 2
